The debate began to take on strong emotional significance. One observer begged the easterners not to ridicule the Silverites out west:
Some of the Eastern people either misunderstand the character and force of the silver sentiment in the West, or purposely deceive themselves about it. Such epithets as “Western lunatics,” “Knaves of the prairies,” “lazy shifters,” “mining camp robbers,” “deadbeats,” “repudiationists,” and “anarchists,” have no other effect than to cause irritation and anger.8
This same observer was amazed by the strong differences in ideas, given that most of the westerners had migrated there from the East. He went on to describe the emotionally charged constellation of ideas that the western Silverites seemed to share, particularly their resentment of the monetary experts who believed that any change in the US monetary standard would require delicate international negotiation. Ultimately, he underestimated the power of geographically local idea epidemics.
The contagion of the bimetallism concept was not confined to the United States. The International Bimetallism Conference in London in 1894 noted that a long slow deflation caused by the gold standard had produced depression in agriculture across much of the world.9 The conference report said that the United States suffered more than other countries, and no other major country saw such a swelling of popular support for bimetallism.
The condescending attitude of eastern intellectuals in the United States was surely noted, and resented, at the height of the bimetallist controversy. We can see how other narratives played on this resentment. Coin’s Financial School, by lawyer William Hope Harvey, was published in 1894, in the middle of the 1890s depression. It presented an argument in favor of bimetallism. One wonders how a book on such an arcane and technical issue could have become a best seller in the United States. It is widely reputed to have sold a million copies when the US population was only a little over 20% of today’s population. But the book is presented in an engaging way, in the form of a fictional dialogue with numerous pictures. The story follows a young man (perhaps in his early teens, based on the pictures) named Coin, a “little financier” lecturing in favor of bimetallism to an audience of argumentative men, including newspaper reporters. They report Coin’s first lecture in newspapers, and his insolence angers establishment men, professors, and bankers, who show up for his second lecture in numbers. A “Professor Laughlin, head of the school of political economy in the Chicago University,” a real person with fictional lines in the book, tries to embarrass young Coin by questioning him about the facts of the gold standard, but young Coin proves that he knows the facts even better than Professor Laughlin does.10 In Harvey’s book, we see one of the key elements in the contagion of the bimetallism narrative: a good story about an intelligent young man who gets the better of snooty intellectuals and professionals.
Bimetallism and Bitcoin
The enthusiasm for bimetallism in the nineteenth century seems similar to the excitement for Bitcoin we have seen in recent years. Among my students at Yale, some seem passionate about Bitcoin, and others appear extremely intrigued when I bring up Bitcoin. Maybe part of the appeal is that understanding Bitcoin requires some effort and talent. There is an air of mystery around Bitcoin, just as there is with conventional money. Few people understand how paper money gets its value and sustains it either.
As we noted in chapter 1, there is a detective-story-like mystery about Bitcoin, aided by the narrative that it was invented by Satoshi Nakamoto, who might be a multibillionaire as a result of his Bitcoin holdings. However, no one has ever found him or confirmed his existence. Indeed, the Bitcoin narrative is associated with secret codes, like the codes that are still talked about in popular World War II narratives. The idea that savvy young people understand Bitcoin, but that old fogies never will, appeals to many.
It is no coincidence that, a century ago, William Hope Harvey made Coin a young man. In the 1890s, the monetary standard offered some of the same mystery that Bitcoin does today. Young people in the 1890s wondered: What exactly is this money we have, and why does it have value? They might then have asked: How can we be on the gold standard when I almost never see a gold coin, only paper money, copper pennies, and silver dimes? What would happen if I walked into a bank and tried to demand my gold? Most people in the 1890s never tried to do that, and they might have been rebuffed if they did, because banks satisfied their obligations when they gave depositors paper dollars. So, even in the 1890s, the gold standard was a tantalizing mystery.
Silverites and Gold Bugs
In many ways the Silverites of the 1890s anticipated the supporters of Donald J. Trump in the 2016 US presidential election, both in their sympathies and in the contempt that many intellectuals held for them. A Washington Post reporter visiting Seattle in July 1896 wrote:
A spirit of ardent Americanism pervades the entire population. They believe in a nation with a big N, and think America is strong enough to whip the rest of the world, if need be, and surely to put into force any legislation it may undertake without the consent or cooperation of any other government. They are wide-awake, hospitable, and honorable. “Sunset” Cox, after a trip among them, aptly described the Westerners as “the cream of Eastern young enterprise.”
Thousands of them regularly read the Eastern papers from their old homes. For the first time in their lives they now discover in these same papers that they are “idiots” and “anarchists.” While editor Dana, of The New York Sun, is exhausting the adjectives of abuse for Western people in general, his own nephew and adopted son, John K. Dana, is quietly and industriously earning a living on a wheat and stock farm four miles west of Oakesdale, this State, and is a free silver man of the Populist variety.11
The notion that bimetallism is the only route to prosperity became strong among Silverites, who suggested that the 1890s depression would go on forever if the gold standard were allowed to stand. This idea was misguided, for the gold standard had been around for decades and depression had not been permanent. But the idea became ego-involving for Silverites, a core truth that they’d discovered that was nonetheless opposed by pretentious eastern intellectuals. During the presidential election campaign of 1896, William McKinley said that sound money is the route to general prosperity:
Read the history of the great financial depressions and panics of 1817, 1825, 1837, 1841, 1857, 1873, 1893, and 1896, and see if this is not true. The triumph of sound money and protection at the polls in November will, in my judgment, restore confidence and thereby help every species of business, and when that is done your business will share in the general advancement and profit by the general prosperity.12
The implication was that the Silverites, typically rural and ignorant farming people, did not read history. But the idea that the depression would last forever spread among them nonetheless, and the idea itself worked against prosperity, for it discouraged spending and investing.
Meanwhile, those who were fiery in their support of the gold standard became known as gold bugs. Rare in 1874, the term took off on what appears to be a hump-shaped infective curve, peaking in 1896 during the depths of the great depression of the 1890s. After McKinley defeated William Jennings Bryan in the 1896 presidential election, a joke went viral. A Silverite would ask a gold bug, “Have you seen the General?” The other would invariably respond, “General who?” The answer was “general prosperity,” referring to McKinley’s words during the campaign. The joke faded in 1897 around a year after the election; it lost its effect when the economy began showing signs of improvement.13
Narratives Trigger the 1893 Bank Runs
The 1893–99 depression in the United States started quite suddenly in the spring of 1893 with a string of bank runs. Depositors rushed to pull their money out of banks, thereby fueling the bank failures that they feared. But what triggered the bank run?
One trigger was a rumor that began on April 17, 1893: the US subtreasury offices would no longer redeem Treasury notes in gold but would provide only silver, in
amounts worth about half as much as the notes. There was no basis for this rumor except the news that Treasury reserves were falling. Newspapers had made big news out of the fact that Treasury reserves had fallen below $100 million, just because it was a round number. But the run was on the commercial banks, not on the Treasury. Alexander Dana Noyes, later the financial editor of the New York Times, commented in 1898:
Panic is in its nature unreasoning; therefore, although the financial fright of 1893 arose from fear of depreciation of the legal tenders [federal-government-issued paper money], the first act of frightened bank depositors was to withdraw these very legal tenders from their banks.14
Noyes believed that depositors withdrew their money from commercial banks, which had nothing to do with redeeming legal tenders with gold, because the paper money was “the only form of money they were in the habit of using” and because withdrawing from the local bank is what people did in the popular narratives about past times of financial distress. In other words, they were playing by a script that they had seen or heard about many times before. They were used to going to the commercial banks but not to the subtreasury offices where they could demand gold in exchange for notes.15 So the initial panic of spring 1893 seems to have been the result of the high contagion of stories of bank failures. But this story is not enough to explain the extended depression of 1893 to 1899.
In reading accounts of the gold standard in the 1890s, we see an almost religious attachment to the idea among a large fraction of the US population, largely easterners and the educated. The support for the gold standard was based on the idea that contracts were written with the gold standard as an assumption. Therefore, monkeying with the gold standard could amount to reneging on a contract.
Beyond its business significance, gold has an enormous spiritual significance that economists usually do not consider. Wedding rings are made from it. The word gold appears 419 times in the King James version of the Bible. Paintings of saints depict a gold-colored nimbus radiating from their heads. In Christian tradition, these saints were often among the lowly and despised in society, but the nimbus reveals their true worth. In his 1860 poem to his readers “To You, Whoever You Are,” Walt Whitman wanted to show that he values every one of his readers:
But I paint myriads of heads, but paint no head without its nimbus of gold-colored light
From my hand, from the brain of every man and woman it streams, effulgently flowing forever.
The narrative in favor of the gold standard took on strong principle-based symbolic dimensions. In 1874, amidst controversy over the Coinage Act, which demonetized silver and put the United States squarely on a gold standard, US senator John P. Jones of Nevada stated (as recorded in The Congressional Globe):
Gold is the articulation of commerce. It is the most potent agent of civilization. It is gold that has lifted the nation from barbarism. It has done more to organize society, to promote industry and insure its rewards, to inspire progress, to encourage science and the arts than gunpowder, steam or electricity.16
In the same debate in 1874, Senator William Morris Stewart, also of Nevada, a gold- and silver-mining state, said:
You may fix up all the propositions you please, but the real thing is when you come down to it finally, I don’t care how much you discuss it or how many resolutions you pass, they don’t make any difference; you must come to the same conclusion that other people have, that gold is recognized as the universal standard of value.17
These statements, which had political goals, oversimplify history. Indeed, there has not been a gold standard through much of history. The “standard model”—a single gold coin representing legal tender, subsidiary coinage of base metal, and paper money with value based on the government’s unqualified willingness to exchange it for legal tender—first came about during the eighteenth century in the United Kingdom. The standard model was not fully adopted in the United States until 1879.18 Talk about the gold standard began in 1874, but it grew in a nice epidemic curve.
Cross of Gold
The narrative of those opposing the gold standard strongly emphasized unjust inequality. In his 1895 book The American Plutocracy, Milford Wriarson Howard wrote of America divided into two classes, the plutocracy and the “toilers of the nation”: “The greatest struggle of all the ages is the one now going on between these two classes.”19 He saw the moral value attached to the gold standard as a canard promulgated by a conspiracy of established leaders to justify simple robbery of working people: “This is modern brigandage, upheld by the law and made respectable by society and the plutocratic churches.”20
That side of the story was contagious in certain quarters, producing a constellation of stories that fed on that contagion, stories of arrogant and grasping business managers who tricked and manipulated innocent people. But it wasn’t the only story. On the other side was a story about the stupid masses swept into a dangerous “populist” movement, a movement associated at the time with the Democratic Party but running contrary to that party’s traditional values. Henry L. Davis of the California Optical Company said in 1896:
The riff-raff is a very large proportion of the voters, and there is danger of their gaining control. Our hope lies in educating them to a greater intelligence, to change their views. Their success would destroy confidence, the unrest would be continued and business would continue to suffer.21
A constellation of narratives arose to reinforce the idea that Silverites are stupid and that economic disaster was imminent. Charles Merrill of Holbrook, Merrill, and Stetson, a retailer of kitchen appliances and plumbers’ supplies, said in 1896:
I have made this thing a deep study, since it is a matter which interests all citizens—merchants and workingmen alike. I believe that if Bryan is elected and the Democratic platform is carried out it will be the most disastrous thing that could happen to this country. Business is bad enough now, but it would be simply ruined in case of Democratic success, and all classes of people would feel the effect of it equally. If the principles of the Democratic platform were embodied into laws, I might as well go out of business.… It would be worse than a civil war. During the late war we managed to maintain our credit but we could not do so if the Democratic platform were put into effect.22
Nonetheless, the Democrats understood the power of gold and used it in their narratives. William Jennings Bryan’s “Cross of Gold” speech at the July 1896 Democratic National Convention is considered one of the most inspiring American political speeches of all time. It interwove talk of the gold standard with talk of Christian morality. Even today, millions of people remember the concluding lines of the speech:
Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.23
As Bryan spoke these words, he stretched his arms out as if he were on a cross, to a cheering throng. The reaction was immediate, not only on the convention floor but also nationwide, sometimes to the point of near hysteria, as if a revolution were at hand and the working class would finally prevail.
Why are Bryan’s concluding lines so powerful? Likely the working classes connected their economic suffering with the imagery of Jesus’s suffering a brutal execution at the hands of the powerful Romans—one of the narratives that helped propel the Christian church through the centuries. Although Bryan spoke the words, he did not write the lines. As many newspapers later reported, a talk by US representative Samuel W. McCall in January 1896, reprinted in the Congressional Record, used almost the same words about a crown of thorns and a cross of gold. Bryan had attended McCall’s talk, and he’d gauged the audience reaction to those lines. He was doing what great demagogues have always done, observing audiences, experimenting, and searching for something that will take.24 As the New York Times commented:
Full many a gem of purest ray serene the d
ark unfathomed files of The Congressional Record may bear. But until the gem has been mined, or rather, until the vein has been worked, by the patient toilers among the back numbers and then issued with an authoritative stamp, it remains useless to man.25
The authoritative stamp that Bryan, a celebrity, put on McCall’s ruminations was exactly what this story needed to go viral. McCall’s words were not a story until a presidential candidate said them in a public forum.
The effect of these conflicting narratives was to leave people unusually uncertain about the value of money and business activity in the near future. Louis Sloss of the Alaska Commercial Company was one of many businessmen who described in 1896 their unwillingness to sign contracts or commit resources at a time when they feared a major devaluation of the money supply and abrogation of contracts:
Business is very dull, almost at a standstill. Capital is timid and confidence is shaken. Nobody wants to invest in any enterprise, no matter how alluring the proposition, until this scare of unsound money is over. I know of an instance which illustrates to what extent business suffers from this unrest and agitation and the uncertainty of our financial basis. One of my relatives and a member of this firm contemplated erecting two magnificent houses to cost at least $50,000. The plans were drawn, the bids had been submitted and all was ready, except the signing of the contracts. The prospective builder refused to sign or undertake the building until after the election, when the financial question of the country will be settled. There are undoubtedly many similar instances, and they are the things that stagnate the course of trade.26
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